SSRN Author: Jinming XueJinming Xue SSRN Contenthttps://www.ssrn.com/author=1874893
https://www.ssrn.com/rss/en-usFri, 27 Dec 2019 01:38:33 GMTeditor@ssrn.com (Editor)Fri, 27 Dec 2019 01:38:33 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Measuring Liquidity Provision by Customers in Corporate Bond Markets: Evidence from 54 Million TransactionsThis paper measures the time-varying provision of liquidity by buy-side customers (e.g., mutual funds and pension funds), relative to bond dealers, in corporate bond markets using a structural vector autoregression (SVAR) model. As indicated by my simple theory model, shocks to the relative willingness of customers and bond dealers to provide liquidity affect, in opposite directions, the choice of bond dealers between market-making (principal) and matchmaking (riskless principal) transactions. Motivated by this model, my SVAR empirically disentangles these shocks to customers versus bond dealers. My SVAR-derived patterns of these structural shocks provide fundamental insights into the mechanics in corporate bond markets following recent events, such as exposing the increased role of buy-side customers for liquidity provision after the many regulatory changes following the 2008 financial crisis. Furthermore, my empirical approach generates “factors” that provide an improved ... https://www.ssrn.com/abstract=3475441
https://www.ssrn.com/1852700.htmlThu, 26 Dec 2019 09:32:30 GMTNew: RecoveryWe consider an approach to derive the conditional expectation of return quantities under the real-world probability measure, exploiting the form of the projected stochastic discount factor. Our treatment is formulaic in that the expectation can be synthesized from the prices of the risk-free bond, the asset, and options on the asset. The method is free of distributional assumptions, and we use it to study empirical questions related to (i) conditional probability of a disaster and return upside and (ii) spanning hypothesis in the Treasury market. We examine the empirical consistency of our approach and show that our treatment is relevant. https://www.ssrn.com/abstract=3485669
https://www.ssrn.com/1844169.htmlSat, 23 Nov 2019 17:33:02 GMTREVISION: Measuring Liquidity Provision by Customers in Corporate Bond Markets: Evidence from 54 Million TransactionsThis paper measures the role of liquidity provision by buy-side customers in corporate bond markets via a structural vector auto-regression (SVAR). Unobservable shocks to the willingness of customers and bond dealers to provide liquidity affect the choice of bond dealers, in opposite directions, between market-making (principal) and matchmaking (riskless principal) transactions. Exploiting this distinction, the SVAR disentangles these two shocks and reveals two episodes of high level of liquidity provision by customers in corporate bond markets: (i) the 2008 “flight-to-safety” and (ii) the 2014-2015 “requests for quotations” technology developments. Further, yield spreads for bonds of different credit ratings respond differentially to shocks in liquidity provision by dealers and customers. My empirical identification strategy for the SVAR is motivated using a theoretical model of decentralized liquidity provision. https://www.ssrn.com/abstract=3475441
https://www.ssrn.com/1843360.htmlWed, 20 Nov 2019 13:06:16 GMTREVISION: What Drives Bid-Ask Spreads in the Corporate Bond Market? Disentangling Shocks to Dealers and CustomersStringent regulations on bank-affiliated broker-dealers have raised concerns of impaired market-making capability in the corporate bond market. Customer liquidity providers, such as hedge funds and insurance companies, are expected to supplement the lost liquidity provision. This paper develops a structural vector autoregression (SVAR) framework to analyze the bid-ask spread computed from transaction-level data. The SVAR disentangles the impacts of changes in risk-taking willingness for dealers and customers on observed trading patterns in prices and volumes. It is shown that capital from customer liquidity providers is one determinant of bid-ask spreads only in the high-yield bond market. In addition, this framework yields an approach to measure the size of the changes in risk-taking willingness for dealers and customers during the last decade. An OTC market model is provided to motivate the strategy in identifying the restrictions for the SVAR. https://www.ssrn.com/abstract=3475441
https://www.ssrn.com/1837221.htmlTue, 29 Oct 2019 13:59:11 GMT